Investments in Associates and Joint Ventures

Transcription

1 HKAS 28 (2011) Revised January Effective for annual periods beginning on or after 1 January 2013 Hong Kong Accounting Standard 28 (2011) Investments in Associates and Joint Ventures

2 COPYRIGHT Copyright 2018 Hong Kong Institute of Certified Public Accountants This Hong Kong Financial Reporting Standard contains IFRS Foundation copyright material. Reproduction within Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and inquiries concerning reproduction and rights for commercial purposes within Hong Kong should be addressed to the Director, Finance and Operation, Hong Kong Institute of Certified Public Accountants, 37/F., Wu Chung House, 213 Queen's Road East, Wanchai, Hong Kong. All rights in this material outside of Hong Kong are reserved by IFRS Foundation. Reproduction of Hong Kong Financial Reporting Standards outside of Hong Kong in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Hong Kong should be addressed to the IFRS Foundation at Further details of the copyright notice form IFRS Foundation is available at Copyright 2 HKAS 28 (2011)

3 CONTENTS from paragraph INTRODUCTION IN1 HONG KONG ACCOUNTING STANDARD 28 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES OBJECTIVE 1 SCOPE 2 DEFINITIONS 3 SIGNIFICANT INFLUENCE 5 EQUITY METHOD 10 APPLICATION OF THE EQUITY METHOD 16 Exemptions from applying the equity method 17 Classification as held for sale 20 Discontinuing the use of the equity method 22 Changes in ownership interest 25 Equity method procedures 26 Impairment losses 40 SEPARATE FINANCIAL STATEMENTS 44 EFFECTIVE DATE AND TRANSITION 45 References to HKFRS 9 46 WITHDRAWAL OF HKAS 28 (2004) 47 APPENDIX COMPARISON WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AMENDMENTS TO HKFRS 10 AND HKAS 28 SALE OR CONTRIBUTION OF ASSETS BETWEEN AN INVESTOR AND ITS ASSOCIATE OR JOINT VENTURE AMENDMENTS TO HKAS 28 LONG-TERM INTERESTS IN ASSOCIATES AND JOINT VENTURES BASIS FOR CONCLUSIONS DISSENTING OPINION TABLE OF CONCORDANCE Hong Kong Accounting Standard 28 Investments in Associates and Joint Ventures (HKAS 28) is set out in paragraphs All the paragraphs have equal authority. HKAS 28 should be read in the context of its objective and the Basis for Conclusions, the Preface to Hong Kong Financial Reporting Standards and the Conceptual Framework for Financial Reporting. HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance. Copyright 3 HKAS 28 (2011) (January )

4 Introduction IN1 Hong Kong Accounting Standard 28 Investments in Associates and Joint Ventures (HKAS 28) prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. IN2 The Standard is effective for annual periods beginning on or after 1 January Earlier application is permitted. Main features of the Standard IN3 IN4 IN5 IN6 HKAS 28 (as amended in 2011) is to be applied by all entities that are investors with joint control of, or significant influence over, an investee. The Standard defines significant influence as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. HKFRS 11 Joint Arrangements establishes principles for the financial reporting of parties to joint arrangements. It defines joint control as the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. An entity applies HKFRS 11 to determine the type of joint arrangement in which it is involved. Once it has determined that it has an interest in a joint venture, the entity recognises an investment and accounts for it using the equity method in accordance with HKAS 28 (as amended in 2011), unless the entity is exempted from applying the equity method as specified in the Standard. Equity method IN7 IN8 The Standard defines the equity method as a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor s share of net assets of the investee. The profit or loss of the investor includes its share of the profit or loss of the investee and the other comprehensive income of the investor includes its share of other comprehensive income of the investee. An entity uses the equity method to account for its investments in associates or joint ventures in its consolidated financial statements. An entity that does not have any subsidiaries also uses the equity method to account for its investments in associates or joint ventures in its financial statements even though those are not described as consolidated financial statements. The only financial statements to which an entity does not apply An entity could elect to use the equity method are in its separate financial statements that it presents in accordance with HKAS 27 Separate Financial Statements. Copyright 4 HKAS 28 (2011) (January 2017)

5 Exemptions from applying the equity method IN9 IN10 The Standard provides exemptions from applying the equity method similar to those provided in HKFRS 10 Consolidated Financial Statements for parents not to prepare consolidated financial statements. The Standard also provides exemptions from applying the equity method when the investment in the associate or joint venture is held by, or is held indirectly through, venture capital organisations, or mutual funds, unit trusts and similar entities including investment-linked insurance funds. Those investments in associates and joint ventures may be measured at fair value through profit or loss in accordance with HKFRS 9 Financial Instruments. Disclosure IN11 The disclosure requirements for entities with joint control of, or significant influence over, an investee are specified in HKFRS 12 Disclosure of Interests in Other Entities. Copyright 5 HKAS 28 (2011)

6 Hong Kong Accounting Standard 28 Investments in Associates and Joint Ventures Objective 1 The objective of this Standard is to prescribe the accounting for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. Scope 2 This Standard shall be applied by all entities that are investors with joint control of, or significant influence over, an investee. Definitions 3 The following terms are used in this Standard with the meanings specified: An associate is an entity over which the investor has significant influence. Consolidated financial statements are the financial statements of a group in which assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. The equity method is a method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the investor s share of the investee s net assets. The investor s profit or loss includes its share of the investee s profit or loss and the investor s other comprehensive income includes its share of the investee s other comprehensive income. A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venturer is a party to a joint venture that has joint control of that joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. Copyright 6 HKAS 28 (2011)

7 4 The following terms are defined in paragraph 4 of HKAS 27 Separate Financial Statements and in Appendix A of HKFRS 10 Consolidated Financial Statements and are used in this Standard with the meanings specified in the HKFRSs in which they are defined: control of an investee group parent separate financial statements subsidiary. Significant influence 5 If an entity holds, directly or indirectly (eg through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or indirectly (eg through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence. 6 The existence of significant influence by an entity is usually evidenced in one or more of the following ways: (a) representation on the board of directors or equivalent governing body of the investee; (b) participation in policy-making processes, including participation in decisions about dividends or other distributions; (c) material transactions between the entity and its investee; (d) interchange of managerial personnel; or (e) provision of essential technical information. 7 An entity may own share warrants, share call options, debt or equity instruments that are convertible into ordinary shares, or other similar instruments that have the potential, if exercised or converted, to give the entity additional voting power or to reduce another party s voting power over the financial and operating policies of another entity (ie potential voting rights). The existence and effect of potential voting rights that are currently exercisable or convertible, including potential voting rights held by other entities, are considered when assessing whether an entity has significant influence. Potential voting rights are not currently exercisable or convertible when, for example, they cannot be exercised or converted until a future date or until the occurrence of a future event. Copyright 7 HKAS 28 (2011)

8 8 In assessing whether potential voting rights contribute to significant influence, the entity examines all facts and circumstances (including the terms of exercise of the potential voting rights and any other contractual arrangements whether considered individually or in combination) that affect potential rights, except the intentions of management and the financial ability to exercise or convert those potential rights. 9 An entity loses significant influence over an investee when it loses the power to participate in the financial and operating policy decisions of that investee. The loss of significant influence can occur with or without a change in absolute or relative ownership levels. It could occur, for example, when an associate becomes subject to the control of a government, court, administrator or regulator. It could also occur as a result of a contractual arrangement. Equity method 10 Under the equity method, on initial recognition the investment in an associate or a joint venture is recognised at cost, and the carrying amount is increased or decreased to recognise the investor s share of the profit or loss of the investee after the date of acquisition. The investor s share of the investee s profit or loss is recognised in the investor s profit or loss. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the investor s proportionate interest in the investee arising from changes in the investee s other comprehensive income. Such changes include those arising from the revaluation of property, plant and equipment and from foreign exchange translation differences. The investor s share of those changes is recognised in the investor s other comprehensive income (see HKAS 1 Presentation of Financial Statements). 11 The recognition of income on the basis of distributions received may not be an adequate measure of the income earned by an investor on an investment in an associate or a joint venture because the distributions received may bear little relation to the performance of the associate or joint venture. Because the investor has joint control of, or significant influence over, the investee, the investor has an interest in the associate s or joint venture s performance and, as a result, the return on its investment. The investor accounts for this interest by extending the scope of its financial statements to include its share of the profit or loss of such an investee. As a result, application of the equity method provides more informative reporting of the investor s net assets and profit or loss. 12 When potential voting rights or other derivatives containing potential voting rights exist, an entity s interest in an associate or a joint venture is determined solely on the basis of existing ownership interests and does not reflect the possible exercise or conversion of potential voting rights and other derivative instruments, unless paragraph 13 applies. 13 In some circumstances, an entity has, in substance, an existing ownership as a result of a transaction that currently gives it access to the returns associated with an ownership interest. In such circumstances, the proportion allocated to the entity is determined by taking into account the eventual exercise of those potential voting rights and other derivative instruments that currently give the entity access to the returns. Copyright 8 HKAS 28 (2011)

9 14 HKFRS 9 Financial Instruments does not apply to interests in associates and joint ventures that are accounted for using the equity method. When instruments containing potential voting rights in substance currently give access to the returns associated with an ownership interest in an associate or a joint venture, the instruments are not subject to HKFRS 9. In all other cases, instruments containing potential voting rights in an associate or a joint venture are accounted for in accordance with HKFRS Unless an investment, or a portion of an investment, in an associate or a joint venture is classified as held for sale in accordance with HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the investment, or any retained interest in the investment not classified as held for sale, shall be classified as a non-current asset. Application of the equity method 16 An entity with joint control of, or significant influence over, an investee shall account for its investment in an associate or a joint venture using the equity method except when that investment qualifies for exemption in accordance with paragraphs Exemptions from applying the equity method 17 An entity need not apply the equity method to its investment in an associate or a joint venture if the entity is a parent that is exempt from preparing consolidated financial statements by the scope exception in paragraph 4(a) of HKFRS 10 or if all the following apply: (a) The entity is a wholly-owned subsidiary, or is a partially-owned subsidiary of another entity and its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the entity not applying the equity method. (b) The entity s debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets). (c) The entity did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation, for the purpose of issuing any class of instruments in a public market. (d) The ultimate or any intermediate parent of the entity produces consolidated financial statements available for public use that comply with HKFRSs or International Financial Reporting Standards, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with HKFRS 10 or IFRS When an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure investments in those associates and joint ventures at fair value through profit or loss in accordance with HKFRS 9. Copyright 9 HKAS 28 (2011) (January 2017)

10 19 When an entity has an investment in an associate, a portion of which is held indirectly through a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that portion of the investment in the associate at fair value through profit or loss in accordance with HKFRS 9 regardless of whether the venture capital organisation, or the mutual fund, unit trust and similar entities including investment-linked insurance funds, has significant influence over that portion of the investment. If the entity makes that election, the entity shall apply the equity method to any remaining portion of its investment in an associate that is not held through a venture capital organisation, or a mutual fund, unit trust and similar entities including investment-linked insurance funds. Classification as held for sale 20 An entity shall apply HKFRS 5 to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale. Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale shall be accounted for using the equity method until disposal of the portion that is classified as held for sale takes place. After the disposal takes place, an entity shall account for any retained interest in the associate or joint venture in accordance with HKFRS 9 unless the retained interest continues to be an associate or a joint venture, in which case the entity uses the equity method. 21 When an investment, or a portion of an investment, in an associate or a joint venture previously classified as held for sale no longer meets the criteria to be so classified, it shall be accounted for using the equity method retrospectively as from the date of its classification as held for sale. Financial statements for the periods since classification as held for sale shall be amended accordingly. Discontinuing the use of the equity method 22 An entity shall discontinue the use of the equity method from the date when its investment ceases to be an associate or a joint venture as follows: (a) If the investment becomes a subsidiary, the entity shall account for its investment in accordance with HKFRS 3 Business Combinations and HKFRS 10. (b) If the retained interest in the former associate or joint venture is a financial asset, the entity shall measure the retained interest at fair value. The fair value of the retained interest shall be regarded as its fair value on initial recognition as a financial asset in accordance with HKFRS 9. The entity shall recognise in profit or loss any difference between: (i) the fair value of any retained interest and any proceeds from disposing of a part interest in the associate or joint venture; and (ii) the carrying amount of the investment at the date the equity method was discontinued. (c) When an entity discontinues the use of the equity method, the entity shall account for all amounts previously recognised in other comprehensive income in relation to that investment on the same basis as would have been required if the investee had directly disposed of the related assets or liabilities. Copyright 10 HKAS 28 (2011)

11 23 Therefore, if a gain or loss previously recognised in other comprehensive income by the investee would be reclassified to profit or loss on the disposal of the related assets or liabilities, the entity reclassifies the gain or loss from equity to profit or loss (as a reclassification adjustment) when the equity method is discontinued. For example, if an associate or a joint venture has cumulative exchange differences relating to a foreign operation and the entity discontinues the use of the equity method, the entity shall reclassify to profit or loss the gain or loss that had previously been recognised in other comprehensive income in relation to the foreign operation. 24 If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the entity continues to apply the equity method and does not remeasure the retained interest. Changes in ownership interest 25 If an entity s ownership interest in an associate or a joint venture is reduced, but the entity continues to apply the equity method investment continues to be classified either as an associate or a joint venture respectively, the entity shall reclassify to profit or loss the proportion of the gain or loss that had previously been recognised in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be required to be reclassified to profit or loss on the disposal of the related assets or liabilities. Equity method procedures 26 Many of the procedures that are appropriate for the application of the equity method are similar to the consolidation procedures described in HKFRS 10. Furthermore, the concepts underlying the procedures used in accounting for the acquisition of a subsidiary are also adopted in accounting for the acquisition of an investment in an associate or a joint venture. 27 A group s share in an associate or a joint venture is the aggregate of the holdings in that associate or joint venture by the parent and its subsidiaries. The holdings of the group s other associates or joint ventures are ignored for this purpose. When an associate or a joint venture has subsidiaries, associates or joint ventures, the profit or loss, other comprehensive income and net assets taken into account in applying the equity method are those recognised in the associate s or joint venture s financial statements (including the associate s or joint venture s share of the profit or loss, other comprehensive income and net assets of its associates and joint ventures), after any adjustments necessary to give effect to uniform accounting policies (see paragraphs 35 and 36-36A). 28 Gains and losses resulting from upstream and downstream transactions between an entity (including its consolidated subsidiaries) and its associate or joint venture are recognised in the entity s financial statements only to the extent of unrelated investors interests in the associate or joint venture. Upstream transactions are, for example, sales of assets from an associate or a joint venture to the investor. Downstream transactions are, for example, sales or contributions of assets from the investor to its associate or its joint venture. The investor s share in the associate s or joint venture s gains or losses resulting from these transactions is eliminated. 29 When downstream transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed, or of an impairment loss of those assets, those losses shall be recognised in full by the investor. When upstream transactions provide evidence of a reduction in the net realisable value of the assets to be purchased or of an impairment loss of those assets, the investor shall recognise its share in those losses. Copyright 11 HKAS 28 (2011) (January 2017)

12 30 The contribution of a non-monetary asset to an associate or a joint venture in exchange for an equity interest in the associate or joint venture shall be accounted for in accordance with paragraph 28, except when the contribution lacks commercial substance, as that term is described in HKAS 16 Property, Plant and Equipment. If such a contribution lacks commercial substance, the gain or loss is regarded as unrealised and is not recognised unless paragraph 31 also applies. Such unrealised gains and losses shall be eliminated against the investment accounted for using the equity method and shall not be presented as deferred gains or losses in the entity s consolidated statement of financial position or in the entity s statement of financial position in which investments are accounted for using the equity method. 31 If, in addition to receiving an equity interest in an associate or a joint venture, an entity receives monetary or non-monetary assets, the entity recognises in full in profit or loss the portion of the gain or loss on the non-monetary contribution relating to the monetary or non-monetary assets received. 32 An investment is accounted for using the equity method from the date on which it becomes an associate or a joint venture. On acquisition of the investment, any difference between the cost of the investment and the entity s share of the net fair value of the investee s identifiable assets and liabilities is accounted for as follows: (a) Goodwill relating to an associate or a joint venture is included in the carrying amount of the investment. Amortisation of that goodwill is not permitted. (b) Any excess of the entity s share of the net fair value of the investee s identifiable assets and liabilities over the cost of the investment is included as income in the determination of the entity s share of the associate or joint venture s profit or loss in the period in which the investment is acquired. Appropriate adjustments to the entity s share of the associate s or joint venture s profit or loss after acquisition are made in order to account, for example, for depreciation of the depreciable assets based on their fair values at the acquisition date. Similarly, appropriate adjustments to the entity s share of the associate s or joint venture s profit or loss after acquisition are made for impairment losses such as for goodwill or property, plant and equipment. 33 The most recent available financial statements of the associate or joint venture are used by the entity in applying the equity method. When the end of the reporting period of the entity is different from that of the associate or joint venture, the associate or joint venture prepares, for the use of the entity, financial statements as of the same date as the financial statements of the entity unless it is impracticable to do so. 34 When, in accordance with paragraph 33, the financial statements of an associate or a joint venture used in applying the equity method are prepared as of a date different from that used by the entity, adjustments shall be made for the effects of significant transactions or events that occur between that date and the date of the entity s financial statements. In any case, the difference between the end of the reporting period of the associate or joint venture and that of the entity shall be no more than three months. The length of the reporting periods and any difference between the ends of the reporting periods shall be the same from period to period. Copyright 12 HKAS 28 (2011)

13 35 The entity s financial statements shall be prepared using uniform accounting policies for like transactions and events in similar circumstances. 36 Except as described in paragraph 36A, Iif an associate or a joint venture uses accounting policies other than those of the entity for like transactions and events in similar circumstances, adjustments shall be made to make the associate s or joint venture s accounting policies conform to those of the entity when the associate s or joint venture s financial statements are used by the entity in applying the equity method. 36A Notwithstanding the requirement in paragraph 36, if an entity that is not itself an investment entity has an interest in an associate or joint venture that is an investment entity, the entity may, when applying the equity method, retain the fair value measurement applied by that investment entity associate or joint venture to the investment entity associate s or joint venture s interests in subsidiaries. 37 If an associate or a joint venture has outstanding cumulative preference shares that are held by parties other than the entity and are classified as equity, the entity computes its share of profit or loss after adjusting for the dividends on such shares, whether or not the dividends have been declared. 38 If an entity s share of losses of an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the entity discontinues recognising its share of further losses. The interest in an associate or a joint venture is the carrying amount of the investment in the associate or joint venture determined using the equity method together with any long-term interests that, in substance, form part of the entity s net investment in the associate or joint venture. For example, an item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, an extension of the entity s investment in that associate or joint venture. Such items may include preference shares and long-term receivables or loans, but do not include trade receivables, trade payables or any long-term receivables for which adequate collateral exists, such as secured loans. Losses recognised using the equity method in excess of the entity s investment in ordinary shares are applied to the other components of the entity s interest in an associate or a joint venture in the reverse order of their seniority (ie priority in liquidation). 39 After the entity s interest is reduced to zero, additional losses are provided for, and a liability is recognised, only to the extent that the entity has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, the entity resumes recognising its share of those profits only after its share of the profits equals the share of losses not recognised. Impairment losses 40 After application of the equity method, including recognising the associate s or joint venture s losses in accordance with paragraph 38, the entity applies HKAS 39 Financial Instruments: Recognition and Measurement to determine whether it is necessary to recognise any additional impairment loss with respect to its net investment in the associate or joint venture. 41 The entity also applies HKAS 39 to determine whether any additional impairment loss is recognised with respect to its interest in the associate or joint venture that does not constitute part of the net investment and the amount of that impairment loss. Copyright 13 HKAS 28 (2011) (January 2017)

14 42 Because goodwill that forms part of the carrying amount of an investment in an associate or a joint venture is not separately recognised, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in HKAS 36 Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with HKAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever application of HKAS 39 indicates that the investment may be impaired. An impairment loss recognised in those circumstances is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment in the associate or joint venture. Accordingly, any reversal of that impairment loss is recognised in accordance with HKAS 36 to the extent that the recoverable amount of the investment subsequently increases. In determining the value in use of the investment, an entity estimates: (a) its share of the present value of the estimated future cash flows expected to be generated by the associate or joint venture, including the cash flows from the operations of the associate or joint venture and the proceeds from the ultimate disposal of the investment; or (b) the present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal. Using appropriate assumptions, both methods give the same result. 43 The recoverable amount of an investment in an associate or a joint venture shall be assessed for each associate or joint venture, unless the associate or joint venture does not generate cash inflows from continuing use that are largely independent of those from other assets of the entity. Separate financial statements 44 An investment in an associate or a joint venture shall be accounted for in the entity s separate financial statements in accordance with paragraph 10 of HKAS 27 (as amended in 2011). Effective date and transition 45 An entity shall apply this Standard for annual periods beginning on or after 1 January Earlier application is permitted. If an entity applies this Standard earlier, it shall disclose that fact and apply HKFRS 10, HKFRS 11 Joint Arrangements, HKFRS 12 Disclosure of Interests in Other Entities and HKAS 27 (as amended in 2011) at the same time. 45A 45B 45C [This paragraph refers to amendments that are not yet effective, and is therefore not included in this edition.] Equity Method in Separate Financial Statements (Amendments to HKAS 27), issued in September 2014, amended paragraph 25. An entity shall apply that amendment for annual periods beginning on or after 1 January 2016 retrospectively in accordance with HKAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is permitted. If an entity applies that amendment for an earlier period, it shall disclose that fact. [This paragraph refers to amendments that are not yet effective, and is therefore not included in this edition.] Copyright 14 HKAS 28 (2011) (January 2017)

15 45D Investment Entities: Applying the Consolidation Exception (Amendments to HKFRS 10, HKFRS 12 and HKAS 28), issued in January 2015, amended paragraphs 17, 27 and 36 and added paragraph 36A. An entity shall apply those amendments for annual periods beginning on or after 1 January Earlier application is permitted. If an entity applies those amendments for an earlier period, it shall disclose that fact. References to HKFRS 9 46 If an entity applies this Standard but does not yet apply HKFRS 9, any reference to HKFRS 9 shall be read as a reference to HKAS 39. Withdrawal of HKAS 28 (2004) 47 This Standard supersedes HKAS 28 Investments in Associates (issued in 2004) Copyright 14A HKAS 28 (2011) (January 2017)

16 Appendix Comparison with International Financial Reporting Standards This comparison appendix, which was prepared in June 2011 and deals only with significant differences in the standards extant, is produced for information only and does not form part of the standards in HKAS 28. The International Accounting Standard comparable with HKAS 28 is IAS 28 Investments in Associates and Joint Ventures. There are no major textual differences between HKAS 28 and IAS 28. Copyright 15 HKAS 28 (2011)

17 Appendix Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The following sets out amendments required for this Standard resulting from amendments to HKFRS 10 and HKAS 28 that are not yet effective. Once effective, the amendments set out below will be incorporated into the text of this Standard and this appendix will be deleted. In the amended paragraphs shown below, new text is underlined and deleted text is struck through. Paragraphs 28 and 30 are amended and paragraphs 31A 31B and 45A are added. Deleted text is struck through and new text is underlined. Paragraphs 29 and 31 are reproduced for ease of reference, but are not amended. Equity method procedures Gains and losses resulting from upstream and downstream transactions involving assets that do not constitute a business, as defined in HKFRS 3, between an entity (including its consolidated subsidiaries) and its associate or joint venture are recognised in the entity s financial statements only to the extent of unrelated investors interests in the associate or joint venture. Upstream transactions are, for example, sales of assets from an associate or a joint venture to the investor. The entity s share in the associate s or the joint venture s gains or losses resulting from these transactions is eliminated. Downstream transactions are, for example, sales or contributions of assets from the investor to its associate or its joint venture. The investor s share in the associate s or joint venture s gains or losses resulting from these transactions is eliminated. 29 When downstream transactions provide evidence of a reduction in the net realisable value of the assets to be sold or contributed, or of an impairment loss of those assets, those losses shall be recognised in full by the investor. When upstream transactions provide evidence of a reduction in the net realisable value of the assets to be purchased or of an impairment loss of those assets, the investor shall recognise its share in those losses. 30 The gain or loss resulting from the contribution of a non-monetary assets that do not constitute a business, as defined in HKFRS 3, to an associate or a joint venture in exchange for an equity interest in the that associate or joint venture shall be accounted for in accordance with paragraph 28, except when the contribution lacks commercial substance, as that term is described in HKAS 16 Property, Plant and Equipment. If such a contribution lacks commercial substance, the gain or loss is regarded as unrealised and is not recognised unless paragraph 31 also applies. Such unrealised gains and losses shall be eliminated against the investment accounted for using the equity method and shall not be presented as deferred gains or losses in the entity s consolidated statement of financial position or in the entity s statement of financial position in which investments are accounted for using the equity method. 31 If, in addition to receiving an equity interest in an associate or a joint venture, an entity receives monetary or non-monetary assets, the entity recognises in full in profit or loss the portion of the gain or loss on the non-monetary contribution relating to the monetary or non-monetary assets received. Copyright 15A HKAS 28 (2011) (October 2014)

18 31A 31B The gain or loss resulting from a downstream transaction involving assets that constitute a business, as defined in HKFRS 3, between an entity (including its consolidated subsidiaries) and its associate or joint venture is recognised in full in the investor s financial statements. An entity might sell or contribute assets in two or more arrangements (transactions). When determining whether assets that are sold or contributed constitute a business, as defined in HKFRS 3, an entity shall consider whether the sale or contribution of those assets is part of multiple arrangements that should be accounted for as a single transaction in accordance with the requirements in paragraph B97 of HKFRS 10. Paragraph 45C is amended. New text relating to the 2014 Amendments is underlined. New text relating to the 2015 Amendments is underlined and shaded in grey. Deleted text relating to the 2015 Amendments is struck through and shaded in grey. Effective date and transition 45C... Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to HKFRS 10 and HKAS 28), issued in October 2014, amended paragraphs 28 and 30 and added paragraphs 31A 31B. An entity shall apply those amendments prospectively to the sale or contribution of assets occurring in annual periods beginning on or after 1 January 2016 a date to be determined. Earlier application is permitted. If an entity applies those amendments earlier, it shall disclose that fact. Copyright 15B HKAS 28 (2011) (October 2014January 2016)

19 Appendix Amendments to HKAS 28 Long-term Interests in Associates and Joint Ventures The following sets out amendments required for this Standard resulting from amendments to HKAS 28 that are not yet effective. Once effective, the amendments set out below will be incorporated into the text of this Standard and this appendix will be deleted. In the amended paragraphs shown below, new text is underlined and deleted text is struck through. Paragraphs 14A and 45G 45K are added and paragraph 41 is deleted. Deleted text is struck through. Equity method 14A An entity also applies HKFRS 9 to other financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of the entity s net investment in an associate or joint venture (see paragraph 38). An entity applies HKFRS 9 to such long-term interests before it applies paragraph 38 and paragraphs of this Standard. In applying HKFRS 9, the entity does not take account of any adjustments to the carrying amount of long-term interests that arise from applying this Standard. Application of the equity method 41 [Deleted] The entity applies the impairment requirements in HKFRS 9 to its other interests in the associate or joint venture that are in the scope of HKFRS 9 and that do not constitute part of the net investment. Effective date and transition 45G 45H 45I Long-term Interests in Associates and Joint Ventures, issued in January 2018, added paragraph 14A and deleted paragraph 41. An entity shall apply those amendments retrospectively in accordance with HKAS 8 for annual reporting periods beginning on or after 1 January 2019, except as specified in paragraphs 45H 45K. Earlier application is permitted. If an entity applies those amendments earlier, it shall disclose that fact. An entity that first applies the amendments in paragraph 45G at the same time it first applies HKFRS 9 shall apply the transition requirements in HKFRS 9 to the long-term interests described in paragraph 14A. An entity that first applies the amendments in paragraph 45G after it first applies HKFRS 9 shall apply the transition requirements in HKFRS 9 necessary for applying the requirements set out in paragraph 14A to long-term interests. For that purpose, references to the date of initial application in HKFRS 9 shall be read as referring to the beginning of the annual reporting period in which the entity first applies the amendments (the date of initial application of the amendments). The entity is not required to restate prior periods to reflect the application of the amendments. The entity may restate prior periods only if it is possible without the use of hindsight. Copyright 15C HKAS 28 (2011) (January 2018)

20 45J When first applying the amendments in paragraph 45G, an entity that applies the temporary exemption from HKFRS 9 in accordance with HKFRS 4 Insurance Contracts is not required to restate prior periods to reflect the application of the amendments. The entity may restate prior periods only if it is possible without the use of hindsight. 45K If an entity does not restate prior periods applying paragraph 45I or paragraph 45J, at the date of initial application of the amendments it shall recognise in the opening retained earnings (or other component of equity, as appropriate) any difference between: (a) (b) the previous carrying amount of long-term interests described in paragraph 14A at that date; and the carrying amount of those long-term interests at that date. Copyright 15D HKAS 28 (2011) (January 2018)

21 CONTENTS BASIS FOR CONCLUSIONS ON IAS 28 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES INTRODUCTION The structure of IAS 28 and the Board s deliberations SCOPE SIGNIFICANT INFLUENCE Potential voting rights APPLICATION OF THE EQUITY METHOD Temporary joint control and significant influence (2003 revision) Severe long-term restrictions impairing ability to transfer funds to the investor (2003 revision) Non-coterminous year-ends (2003 revision) Exemptions from applying the equity method: partial use of fair value measurement of associates Classification as held for sale Discontinuing the use of the equity method Incorporation of SIC-13 Recognition of losses (2003 revision) Impairment losses (2008 amendment) EFFECTIVE DATE AND TRANSITION GENERAL Withdrawal of IAS 28 (2003 revision) Disclosure Summary of main changes from IAS 28 (2003 revision) DISSENTING OPINION ON AMENDMENT ISSUED IN MAY 2008 TABLE OF CONCORDANCE AMENDMENTS TO BASIS FOR CONCLUSIONS ON IFRS 10 AND IAS 28 SALE OR CONTRIBUTION OF ASSETS BETWEEN AN INVESTOR AND ITS ASSOCIATE OR JOINT VENTURE AMENDMENTS TO THE BASIS FOR CONCLUSIONS ON IAS 28 LONG-TERM INTERESTS IN ASSOCIATES AND JOINT VENTURES ILLUSTRATIVE EXAMPLE LONG-TERM INTERESTS IN ASSOCIATES AND JOINT VENTURES from paragraph BC1 BC4 BC10 BC15 BC15 BCZ17 BCZ17 BCZ18 BCZ19 BCZ20 BC23 BC28 BC32 BCZ38 BCZ42 BC47 BC51 BC51 BC52 BC56 DO1 Copyright 16 HKAS 28 (2011) (January )

22 Basis for Conclusions on IAS 28 Investments in Associates and Joint Ventures This Basis for Conclusions accompanies, but is not part of, IAS 28. HKAS 28 is based on IAS 28 Investments in Associates and Joint Ventures. In approving HKAS 28, the Council of the Hong Kong Institute of Certified Public Accountants considered and agreed with the IASB s Basis for Conclusions on IAS 28. Accordingly, there are no significant differences between HKAS 28 and IAS 28. The IASB s Basis for Conclusions is reproduced below. The paragraph numbers of IAS 28 referred to below generally correspond with those in HKAS 28. Introduction BC1 BC2 BC3 This Basis for Conclusions summarises the International Accounting Standards Board s considerations in reaching its conclusions on amending IAS 28 Investments in Associates in Individual Board members gave greater weight to some factors than to others. The amendment of IAS 28 resulted from the Board s project on joint ventures. When discussing that project, the Board decided to incorporate the accounting for joint ventures into IAS 28 because the equity method is applicable to both joint ventures and associates. As a result, the title of IAS 28 was changed to Investments in Associates and Joint Ventures. Because the Board s intention was not to reconsider the fundamental approach to the accounting for investments in associates established by IAS 28, the Board has incorporated into its Basis for Conclusions on IAS 28 material from the Basis for Conclusions on IAS 28 (as revised in 2003) that the Board has not reconsidered. The structure of IAS 28 and the Board s deliberations BC4 BC5 IAS 28 as amended in 2011 superseded IAS 28 (as revised in 2003 and amended in 2010). As stated in paragraph BC3, in amending IAS 28, the Board did not reconsider all the Standard s requirements. The requirements in paragraphs 5 11, 15, 22 23, and relate to the assessment of significant influence and to the equity method and its application, and paragraphs relate to the accounting for potential voting rights. With the exception of the Board s decision to incorporate the accounting for joint ventures into IAS 28, those paragraphs were carried forward from IAS 28 and from the Guidance on Implementing IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures that was withdrawn when IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IAS 28 (as amended in 2011) were issued. As a result, those paragraphs were not reconsidered by the Board. When revised in 2003 IAS 28 was accompanied by a Basis for Conclusions summarising the considerations of the Board, as constituted at the time, in reaching its conclusions. That Basis for Conclusions was subsequently updated to reflect amendments to the Standard. Copyright 17 HKAS 28 (2011)

23 BC6 The Board has incorporated into its Basis for Conclusions on IAS 28 (as amended in 2011) material from the previous Basis for Conclusions because it discusses matters that the Board has not reconsidered. That material is contained in paragraphs denoted by numbers with the prefix BCZ. In those paragraphs cross-references have been updated accordingly and minor necessary editorial changes have been made. BC7 One Board member dissented from an amendment to IAS 28 issued in May 2008, which has been carried forward to IAS 28 (as amended in 2011). His dissenting opinion is also set out after this Basis for Conclusions. BC8 BC9 The requirements in paragraphs 2, 16 21, 24 and relate to matters addressed within the joint ventures project that led to amendments to IAS 28. Paragraphs describing the Board s considerations in reaching its conclusions on IAS 28 are numbered with the prefix BC. As part of its project on consolidation, the Board is examining how an investment entity accounts for its interests in subsidiaries, joint ventures and associates. The outcome might affect how organisations such as venture capital organisations, or mutual funds, unit trusts and similar entities account for their interests in joint ventures and associates. The Board expects to publish later in 2011 an exposure draft on investment entities. 1, 2 Scope BC10 BC11 BC12 During its redeliberation of the exposure draft ED 9 Joint Arrangements, the Board reconsidered the scope exception of IAS 31 that had also been proposed in ED 9. The Board concluded that the scope exception in ED 9 for interests in joint ventures held by venture capital organisations, or mutual funds, unit trusts and similar entities, including investment-linked insurance funds, that are measured at fair value through profit or loss in accordance with IFRS 9 Financial Instruments is more appropriately characterised as a measurement exemption, and not as a scope exception. The Board observed that IAS 28 had a similar scope exception for investments in associates held by venture capital organisations, or mutual funds, unit trusts and similar entities, including investment-linked insurance funds, that are measured at fair value through profit or loss in accordance with IFRS 9. The Board observed that the scope exception in ED 9 and IAS 28 related not to the fact that these arrangements do not have the characteristics of joint arrangements or those investments are not associates, but to the fact that for investments held by venture capital organisations, or mutual funds, unit trusts and similar entities including investment-linked insurance funds, fair value measurement provides more useful information for users of the financial statements than would application of the equity method. 1 2 In October 2012 the Board issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), which required investment entities, as defined in IFRS 10 Consolidated Financial Statements, to measure their investments in subsidiaries, other than those providing investment-related services or activities, at fair value through profit or loss. The amendments did not introduce any new accounting requirements for investments in associates or joint ventures. In December 2014, the IASB issued Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). The amendments introduced relief to permit a non-investment entity investor in an associate or joint venture that is an investment entity to retain the fair value through profit or loss measurement applied by the associate or joint venture to its subsidiaries (see paragraphs BC46A BC46G). Copyright 18 HKAS 28 (2011) (October 2014January 2017)